ASX edges higher amid mixed signals

The market rallied from a loss earlier in the session after the Reserve Bank of New Zealand said its next rate move would likely be down, placing further pressure on the Reserve Bank of Australia to do the same.

The major miners led the market gains on Wednesday. BHP Group rose 0.9 per cent to $37.90, Rio Tinto advanced 1.5 per cent to $95.23 and Fortescue Metals Group climbed 2.4 per cent to $6.78.

Energy stocks also firmed as the price of crude oil rose after Russia said it expected to fulfil its pledged oil production cuts. Santos rose 0.9 per cent to $6.89, Beach Energy climbed 2.8 per cent to $2.05 and WorleyParsons closed 2.2 per cent higher at $14.15.

Eclipx shares advanced 22.8 per cent to 70¢ after the ailing fleet-management group said it would apply the proceeds of the sales of its Grays and Right2Drive businesses to reduce its debts. It also announced it would scrap any interim dividend payments.

CSL led the market declines on Wednesday as its shares fell 1 per cent to $192.33. Other index heavyweights also closed the session lower although their losses were relatively mild.

Tassal Group shares closed 6.5 per cent lower at $4.64 after The Australian Financial Review revealed the company’s failure to disclose a deadly listeria outbreak in its salmon stocks in Queensland.

The company did not mention the outbreak in its half-year results three days following the outbreak and the company’s chief executive Mark Ryan sold half his stake in the company a week following the outbreak.

Alumina shares fell after Norwegian aluminium giant Norsk Hydro said it had agreed with Brazil’s federal prosecutor to have a third-party technical assessment that could lead to it resuming full production at the half-shut Alunorte alumina refinery. Alumina’s shares closed 4.7 per cent lower at $2.44. South32 shares also fell, down 1.3 per cent to $3.68.

Stock watch

KATHMANDU HOLDINGS

Canaccord Genuity reduced its price target on Kathmandu Holdings following the retailer’s first-half result. While the results were slightly higher than the broker’s rebased forecasts, it downgraded its valuation based on the near-term uncertainties concerning inventory levels and margin pressures. “After the January downgrade, we thought earnings growth would be challenging in the medium-term because consumer demand looked soft and a weaker currency would put pressure on cost of goods sold in 2019-20,” said analyst Benn Skender. “Management has an excellent track record in inventory management to date, but unwinding this overhang will present a challenge in the near-term.” Canaccord Genuity dropped its price target on Kathmandu from $2.82, to $2.21.

What moved the market

BONDS AND EQUITIES

The inversion of the US Treasury yield curve is set to weigh on Wall Street, with the previous inversions of the curve weighing heavily on the US equity market. “We think that the recent inversion of parts of the US Treasury yield curve is a bad sign for the S&P 500, which we expect to fall sharply over the rest of this year as growth in the US economy disappoints,” said Capital Economic markets economist Oliver Jones. “With growth in the rest of the world – where S&P 500 companies make around 40% of their sales – likely to disappoint too, we forecast that the index will fall sharply, to 2,300, by the end of 2019.”

OIL RISING

The price of Brent crude rose on Tuesday after Russia said it would reach its pledged oil production cuts by the end of the month, further limiting supply to the market. Russia had agreed to reduce its output by more than 200,000 barrels per day from its October levels as part of the broader cut led by OPEC and other allied nations. “Given market concerns that Russia’s compliance with the accord was waning, Russia’s imminent compliance with their production cuts is a key positive support for oil prices,” said CBA mining and energy commodities analyst Vivek Dhar. The price of Brent crude rose 1 per cent to $US67.26 a barrel.

NEW ZEALAND DOLLAR

The New Zealand dollar plummeted on Wednesday after the Reserve Bank of New Zealand said the next movement in the country’s official cash rate was likely to be down, citing a weaker global economic outlook and reduced momentum in domestic spending. In a statement following its decision to keep the cash rate on hold at 1.75 per cent, the central bank said the balance of risks to its outlook had shifted to the downside. “The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending,” they said. The New Zealand dollar fell 1.6 per cent against the US dollar following the release.

RATE CUTS

Capital Economics’ Marcel Thieliant has become the first major Australian economist to forecast the RBA cutting rates as low as 0.75 per cent in the next 12 months. In a note on Tuesday evening, he outlined his concerns about the economy, saying the downturn in the housing market showed few signs of abating and that the labour market’s tightening was unlikely to last. “Our previous forecast was that the RBA would start lowering interest rates in November,” Mr Thieliant said. “But the continued weakness in the activity data suggests that the RBA may have to move earlier and we have brought forward our forecast for the first rate cut from November to August. What’s more, we think that the RBA will move faster and cut rates again in November and February, bringing them to a fresh record-low of 0.75 per cent.”

William McInnes covers markets from Sydney including editing the Markets Live blog.